Brazil’s real rallied, strengthening beyond 2 per dollar for the first time since July, after the central bank auctioned foreign-exchange swap contracts to shore up the currency and contain inflation.
The real rallied 1.7 percent to 1.9955 per dollar at the close in Sao Paulo, reversing an initial loss after the central bank sold all $1.85 billion of contracts offered. The gain was the biggest since June 29, pushing the currency to its strongest level since July 2.
The intervention surprised traders, who had speculated that the central bank would refrain from rolling over $1.8 billion of currency swap contracts maturing Feb. 1, Joao Paulo de Gracia Correa, the head of currency trading at Correparti Corretora, said by phone from Curitiba, Brazil.
“The auction took everybody by surprise,” he said in a telephone interview. “The central bank should leave the real at this level in the short term to relieve inflation pressure.”
Policy makers swung in 2012 between selling currency swaps to prevent the real from falling too quickly and offering reverse currency swaps to protect exporters by keeping the real from strengthening beyond 2 per dollar. The central bank sold all 37,000 of currency swap contracts offered today.
Most swap rates on contracts expiring after October 2015 climbed as analysts raised their 2013 inflation estimate for a fourth week, increasing pressure on policy makers to lift borrowing costs.
Consumer prices will rise at an annual rate of 5.67 percent in 2013, according to the median estimate in a central bank survey of about 100 analysts published today. That compares with a projection of 5.65 percent in the previous week.
The best policy for containing consumer price increases is to keep the target rate at a record low for a “sufficiently prolonged period,” the central bank reiterated in minutes of its Jan. 15-16 meeting published last week.
Annual inflation has exceeded the 4.5 percent midpoint of the central bank’s target range for 28 consecutive months. The IPCA index of consumer prices rose 5.84 percent in December from a year earlier after increasing 5.53 percent in the prior period, the national statistics agency reported Jan. 10.
Economic growth slowed to 1 percent last year, the central bank estimates, following expansion of 2.7 percent in 2011 and 7.5 percent in 2010.
Swap rates on the contract due in January 2017 rose five basis points, or 0.05 percentage point, to 8.81 percent, the highest level on a closing basis since Nov. 22.